How it works
Three numbers decide a position size, and only three:
- What a loss may cost. A percentage of the balance, or a fixed amount.
- How far the stop is. In pips, from entry to the price that says you were wrong.
- What a pip is worth per lot. Contract size × pip size, converted into your account currency.
Then: lots = risk ÷ (stop in pips × pip value per lot).
Why it rounds down
Say the exact answer is 0.274 lots and your broker trades in steps of 0.01. Rounding up to 0.28 risks more than you decided to risk — not much on one trade, but it is the wrong direction to be wrong in, every time, for the rest of your trading. So it gives you 0.27 and tells you what that actually costs.
The conversion nobody remembers
A pip on EUR/USD pays in dollars. A pip on EUR/GBP pays in pounds. If your account is in rand,
every one of those has to be converted before the risk means anything, and the calculator asks for
that rate rather than guessing it. On a dollar account trading USD/JPY, the rate is simply
1 ÷ the current price.
Check the contract size against your platform
The defaults here are the common ones — 100 000 units a lot on forex, 100 ounces on gold, one contract on the indices — but brokers differ, especially on indices and crypto. In MetaTrader: right-click the symbol → Specification. Both fields are editable for exactly that reason.